Finding and making an offer on the home of your dreams — euphoria! Getting a copy of your loan cost estimate from your lender — utter confusion. If you’re like most home buyers, you’ll spend hours deciphering all the costs involved in a mortgage loan. And, then you wonder: What’s the difference between a processing fee, closing fee and settlement fee? What exactly is a yield spread premium, and how do you know you can’t get the loan cheaper elsewhere? After all, the cost of the loan is about more than the interest rate.

The Department of Housing and Urban Development intends to make things less confusing on Jan. 1, 2010, with a new Good Faith Estimate form, or GFE, which outlines the costs of a proposed loan, as well as a revised settlement statement, which displays your final loan costs and is signed at closing. HUD estimates that average borrowers will save nearly $700 because they can clearly define costs and compare loans.

“It was immensely difficult for the borrower to decipher the costs that they would be expected to bear when it came to closing,” says HUD spokesperson Brian Sullivan. “If you were presented a loan offer and the costs were very clear, you can get other offers, easily compare and make decisions.”

Ritch Workman, owner of Workman Mortgage Company in Melbourne, Fla., and a Florida state representative, agrees: “Everyone needs to shop for a loan. Half of those who get ripped off wouldn’t have if they’d just called one more person rather than follow the lowest interest rate online.”

Here are four tips for finding the most cost-effective mortgage:

1. Know your loan type. Many borrowers now in foreclosure didn’t understand the type of loan they were getting. Adjustable-rate mortgages reset, triggering payments they could no longer afford. To better educate the consumer, “on the first page of the GFE, you’re now told what type of loan you have, your monthly payment and whether or not there’s a prepayment penalty,” says Jay Varon, an attorney with Foley & Lardner in Washington, D.C., who specializes in HUD-related issues. In the past, your only point of loan comparison was the interest rate. The new form answers questions such as, ‘Will my interest rate change?’, ‘Is there a balloon payment?’, and ‘Is this a fixed-rate mortgage?’”

2. Dedicate time to shopping. Workman urges consumers to use the shopping chart provided in the good faith estimate and allow time for the process. “If you’re working with someone who faxes you a GFE within minutes of your phone conversation, know that it isn’t accurate,” he says. It takes time to get cost disclosures from the title company and other steps, which means you should allow time to gather and assess the information.

3. Determine how long you’ll live in the home. Your timetable will pay a role in what loan you choose. “If you might have to move or only plan to be in the house a short time, paying a lot of points so you can have the lowest interest rate won’t make sense,” says Varon. “If you think this will be your home for 15 years, paying points to lower the interest rate may be the right thing to do.”

4. Concentrate on the rate and the bottom line. “During big refinancing booms, people brag about their interest rate,” says Sullivan. “But that’s not the only predictor of a good offer.” A good offer should have a low interest rate coupled with low loan costs. Remember, you’re not always comparing apples to apples, says Workman, who notes that mortgage brokers and mortgage bankers have different fees attached to the loans, some of which are offered as a credit back at closing. “If interest rates are the same, go to your cash at closing. That bottom line is key. You can use that to shop competitors and then [compare other] fees when you find comparable loans,” he says. Then factor in service, because good service can save you time at the closing — and time is money.